Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.79 million and create incremental cash flows of $507,273.00 each year for the next five years. The cost of capital is 9.59%. What is the internal rate of return for the J-Mix 2000?
Sol:
Internal rate of return (IRR) can be determined using IRR function in excel:
Period | Cash flows |
0 | -1790000.00 |
1 | 507273.00 |
2 | 507273.00 |
3 | 507273.00 |
4 | 507273.00 |
5 | 507273.00 |
IRR | 12.87% |
Therefore internal rate of return for the J-Mix 2000 will be 12.87%
Working
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